Delta

Delta is a number that estimates how much an option's price will move when the underlying stock moves by one dollar. It is one of a group of risk measures called "the Greeks" that options traders use to understand how a position will behave as market conditions change.

Delta is expressed as a decimal between -1 and 1 (or sometimes as a whole number between -100 and 100). A call option, which gives the holder the right to buy a stock at a set price, has a positive delta between 0 and 1. If a call has a delta of 0.40, then a $1 rise in the stock should increase the option's price by roughly $0.40, all else being equal. A put option, which gives the holder the right to sell, has a negative delta between -1 and 0, meaning its value tends to rise when the stock falls.

Delta also functions as a rough proxy for two other things: the probability that an option will expire in the money, and how many shares of stock the option behaves like. An option with a delta of 0.40 acts similarly to owning 40 shares of stock, and traders sometimes say it has a roughly 40% chance of finishing in the money, though that shorthand is an approximation, not a precise probability.

The nuance that trips people up is that delta itself is not fixed. It changes as the stock price moves, as time passes, and as volatility shifts, because delta is really just the slope of the option's price curve at a single moment. Deep in-the-money options have deltas approaching 1 (or -1) and behave almost exactly like stock, while far out-of-the-money options have deltas near 0 and barely react to small stock moves. This rate of change in delta itself is measured by another Greek called gamma.